Blue skies ahead for Worcester contract researcher

Sunday

Jun 16, 2013 at 8:00 AM

By Peter S. Cohan, WALL & MAIN

Last July, I interviewed Paul Wengender, founder and chief executive officer of Blue Sky BioServices in Worcester, a contract research organization that he describes as a maker of "customized picks and shovels for drug miners."

On June 12, I checked in with him to find out what has changed there. The answer is that Blue Sky is much bigger, and it has a new strategy.

As I wrote last year, Mr. Wengender spent more than 15 years at Pfizer and AstraZeneca, helping run laboratories involved with pre-clinical discovery. And in response to competitive pressure to cut costs and boost the number of new products they bring to market, pharmaceutical companies have started outsourcing the service that Blue Sky provides.

Mr. Wengender started Blue Sky after his boss at Pfizer told him that he would not be able to hire more people at Pfizer to build his organization. Realizing that such growth might come from being an outside service provider, Mr. Wengender  who likes "doing things for himself"  started Blue Sky with two people in April 2003.

By July 2012, Blue Sky had "over 40 people, 65 percent of whom were in laboratory operations and the other 35 percent in business operations." Since last July, Blue Sky has grown.

"We have increased our head count 12 percent in the last 18 months, but more than doubled our production capacity," he said.

This big gap between the growth in the number of people and the amount that Blue Sky can produce is a result of a major shift in strategy.

Last July, Blue Sky did "70 percent custom work and 30 percent crank-turning. We are moving to flip those proportions to 70 percent crank-turning and 30 percent custom."

To understand the meaning of this shift, it helps to dig a little deeper into the distinction he makes between "custom" and "crank-turning."

Custom work means putting blue-chip scientists to work on solving a difficult problem that is hard for competitors to address. It takes longer to sell these projects, but the company can charge a higher price.

Unfortunately, custom work can be riskier because often the company has to hire blue chip scientists  who are difficult to attract and retain  before Blue Sky knows it has the work, according to Mr. Wengender.

Crank-turning, in contrast, takes less time from order to delivery, and prices are lower.

According to Mr. Wengender, "Crank-turning is more standardized. We produce recombinant cell paste, or bulk DNA, that can be done with fewer blue-chip scientists, less sales-intensity, and more project engineers, technicians and machines. Because we have much more space now that we've move to 50 Prescott St., we can produce bigger batches and lower our unit costs. Even though we charge about 10 percent more than competitors in India and China, our value to clients in Massachusetts, Connecticut and New Jersey is much better because we respond faster  in seven days (half the time of competitors)  and our transportation costs are much lower."

Blue Sky's strategy shift meant that it needed more capital to buy machines and hire the project managers and technicians. Fortunately for Blue Sky, Mr. Wengender was able to obtain a loan from MassDevelopment, which "gave us a loan from last summer that is due this September."

Blue Sky was a good credit risk because, "We had no previous debt and our ratios (for calculating our ability to pay back the loan) were the best in our industry."

Mr. Wengender remains convinced he was right to locate Blue Sky in Worcester.

"Despite all the changes in the world in the last decade, one thing that has remained constant is that we need access to talent. And Worcester definitely gives us that. New England is the hub of the biotech industry and is at the center of its vortex of talent," he said.

"Worcester may not be at the center of that vortex, but it is close enough. Though we can't get people who live on the North or South Shores, we have plenty of people who live in MetroWest and find it easy to drive to Worcester."

Many Worcester organizations have helped the company grow.

As Mr. Wengender explained, "Blue Sky could not have achieved our 100 percent annual growth without the help of many people in Worcester. City Manager Mike O'Brien has been incredibly helpful. He always listens to what we need and does what he can to help. We have also gotten valuable assistance from MBI's Kevin O'Sullivan, and WPI's Gateway Park."

I look forward to seeing how much further ahead Blue Sky is in 2014.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy at Babson College. His email address is peter@petercohan.com.